Wall Street Soars to Record Highs as Fed Signals Rate Cuts

Fed's rate cut sends stocks to record highs. Where are markets headed from here?

The S&P 500 and the Dow vaulted to record highs one day after the rate cut. Stocks rallied to record highs this week in the aftermath of a jumbo-sized interest rate cut at the Federal Reserve, presenting investors with a key question: Where is the market headed from here? Experts who spoke to ABC News voiced cautious optimism about the outlook for the stock market, since rate cuts typically boost economic performance and buoy corporate earnings. They warned that stocks already stand at elevated prices after a year of strong gains, leaving the market vulnerable to a downturn if the economy continues to slow. "We're in for some volatility," Steve Sosnick, chief strategist at Interactive Brokers, told ABC News. "It wouldn't surprise me if the move higher is more of a grind than it is an escalator." On Thursday, the S&P 500 soared 1.7% and the Dow Industrial Average jumped 1.2%, catapulting both indexes to record highs one day after the Fed handed down a half-point interest rate cut. Along with the rate cut, the central bank forecasted two quarter-point cuts over the remainder of this year and a series of cuts next year totaling one percentage point. The banner trading session on Thursday took hold despite market fluctuations in the immediate hours following the rate cut on Wednesday afternoon, as Wall Street digested the central bank's announcement. In early trading on Friday, markets appeared to resume that uneasy posture with a small move downward for each of the major indexes. The topsy-turvy response owes in part to a run-up in stock prices that preceded the rate cut, experts said. Prior to the rate cut, the S&P 500 had already soared about 18% this year, in part due to anticipation of a lowering of rates. Those priced-in expectations blunted some of the positive impact of rate cuts, experts said, while acknowledging that the move higher reflects a general preference for low rates on Wall Street. "We finally got the rate cut that the market was expecting for months," Callie Cox, chief market strategist at Ritholtz Wealth Management, told ABC News. Stock market gains over the past year have relied mainly on large tech companies propelled by enthusiasm over artificial intelligence. Lower interest rates could broaden the market's upswing to companies in other sectors of the economy, giving stocks room to rise even after months of strong performance, Cox said. "Now that the Fed is lowering rates, you would think that some momentum would shift to some of those unloved areas of the bull market," Cox added. However, concerns about a slowdown in the labor market -- and, by extension, a cooldown in the economy as a whole -- have cast a shadow over the outlook for stocks, experts said. A weaker-than-expected jobs report in each of the last two months has stoked concern among some economists. Meanwhile, the unemployment rate has ticked up this year from 3.7% to 4.2%. Some observers also remain anxious about the prospects for inflation. While price increases have slowed dramatically, they're still accelerating slightly faster than the Fed's target of 2%. "So long as the economy holds up and inflation doesn't roar back to life, lower rates and strong earnings growth can continue to drive stocks higher over the long term," Bret Kenwell, an investing analyst at eToro, said in a statement to ABC News. Sosnick put it more bluntly. "It's really hard to have good markets without a good economy. There are reasons to be concerned that something worse than a soft landing is on the horizon," he said. Something else looms on the horizon: the presidential election in November. Experts predicted that the election would drive some financial headlines and stoke uncertainty, but they downplayed its ultimate impact on market performance. In an examination of market performance stretching back nearly 100 years, asset management firm T. Rowe Price found that the S&P 500 performs better than average in the months preceding a presidential election, and worse than average in the months following one. "Correlations exist in varying degrees, but clients should focus on what ultimately matters over the longer term: the economy and business fundamentals," the firm said in its August report. Cox underscored the point. "Chances are any changes will be insignificant for your wealth-building in the long run," she said.

Wall Street rallies, led by tech, after rate cut

STORY: Wall Street rallied on Thursday with the Dow and S&P 500 hitting new intraday highs, after the Federal Reserve kicked off its easing cycle with a super-sized half percentage-point rate cut. The Nasdaq spiked, climbing nearly 3% at one point in morning trading. After announcing the larger 50-basis-point cut on Wednesday, the Fed also laid out plans for future rate cuts and unveiled projections that could reflect a goldilocks scenario, where growth is steady and inflation and unemployment stay low. That bodes well for stocks, says Eric Diton, president and managing director of The Wealth Alliance. "You look historically, three months out from the first Fed cut, the S&P's up [a] median [of] 6.4%. It's 9.8% if you go out six months, and if you go out one year, it's north of 15%. So, historically, this is the beginning of a bullish time." Rate-sensitive growth stocks that have led much of this year's rally all gained, including Microsoft, Tesla, Apple and AI chip leader Nvidia. The small cap Russell 2000 index also rose, and Diton said that should continue as rates come down further. "They've got more debt than large companies on average. And so if you've got more debt, and you're going to be able to repay some of that debt down the road, and borrow at lower rates, well that is great for you." Traders now see a 63% chance that the central bank will lower interest rates by a quarter percentage-point at its November meeting, per the CME Group's FedWatch tool.

Jubilation sweeps global markets, Wall Street roars after interest rate relief

NEW YORK (AP) -- Wall Street is roaring toward records Thursday as a delayed jubilation sweeps markets worldwide following the Federal Reserve's big cut to interest rates. The S&P 500 was 1.5% higher in early trading and above its all-time closing high set in July. The Dow Jones Industrial Average was up 489 points, or 1.2%, and on track to top its record set on Monday. The Nasdaq composite was 2.2% higher, as of 10 a.m. Eastern time. Companies that feel the most relief from lower interest rates and whose profits are most dependent on the strength of the U.S. economy helped lead the way. The Russell 2000 index of smaller stocks rose 1.7%. Nvidia jumped 4.5% as lower interest rates weakened criticism by a bit that its stock price and other Big Techs ' had grown too expensive in the frenzy around artificial-intelligence technology. The moves followed rallies for markets across Europe and Asia after the Federal Reserve delivered the first cut to interest rates in more than four years late on Wednesday. It was a momentous move by the Fed, closing the door on a run where it kept its main interest rate at a two-decade high in hopes of slowing the U.S. economy enough to stamp out high inflation. Now that inflation has come down from its peak two summers ago, Chair Jerome Powell said the Fed can focus more on keeping the job market solid and the economy out of a recession. Wall Street's initial reaction to Wednesday's cut was a yawn, after markets had already run up for months on expectations for coming reductions to rates, and stocks ended up edging lower after swinging up and down a few times. "Yet we come in today and have a reversal of the reversal," said Jonathan Krinsky, chief market technician at BTIG. He said he did not anticipate such a big jump for stocks on Thursday. Some analysts said it could have been relief that the Fed's Powell was able to thread the needle in his press conference and suggest the deeper-than-usual cut was just a "recalibration" of policy and not an urgent move that it had to take to prevent a recession. The job market has already begun to slow under the weight of higher interest rates, and some critics have said the Fed waited too long to cut rates and may have done damage to the economy. Powell, though, said Fed officials are not in "a rush to get this done" and would make decisions on policy at each successive meeting depending on what the incoming data says. Some investment banks raised their forecasts for how much the Federal Reserve will ultimately cut interest rates, anticipating even deeper reduction than Fed officials. Federal Reserve officials on Wednesday released forecasts showing they expect to cut interest rates by potentially another 1.5 percentage points over 2024 and 2025. At Bank of America, economists are expecting another 2 percentage points over that time. Lower interest rates help financial markets in two big ways. They ease the brakes off the economy by making it easier for U.S. households and businesses to borrow money, which can accelerate spending and investment. They also give a boost to prices of all kinds of investments, from gold to bonds to cryptocurrencies. Bitcoin rose 3% Thursday. An old adage suggests investors should not "fight the Fed" and ride the rising tide when the central bank is cutting interest rates, and Wall Street was certainly doing that Wednesday. But this economic cycle has continued to break conventional wisdoms after the COVID-19 pandemic created an instant recession that gave way to the worst inflation in generations. One of the worries still remaining on Wall Street is that inflation could remain tougher to fully subdue than in the past. And while lower rates can help goose the economy, they can also give inflation more fuel. The upcoming U.S. presidential election could also keep uncertainty reigning in the market. A fear is that both parties could push for policies that add to the U.S. government's debt, which could keep upward pressure on interest rates regardless of the Fed's moves. Economic reports released Thursday suggested an economy that remains solid, at the least. One said fewer workers applied for unemployment benefits last week. It's another signal that layoffs across the country remain low and companies are holding onto workers, even if they're not hiring as many new ones as earlier. A separate report said manufacturing in the mid-Atlantic region returned to growth. Manufacturing has been one of the areas of the economy hurt most by high interest rates, but the Philadelphia Fed index was a touch weaker than expected. In the bond market, the yield on the 10-year Treasury rose to 3.73% from 3.71% late Wednesday. The two-year Treasury yield, which more closely tracks expectations for Fed action, slipped to 3.60% from 3.63%. In stock markets aboard, indexes jumped 1.9% in France, 2.1% in Japan and 2% in Hong Kong. The FTSE 100 rose 0.6% in London after the Bank of England kept interest rates there on hold.

Wall Street soars to record highs in rally that sweeps world

Wall Street romped to records Thursday as jubilation swept markets worldwide one day after the U.S. Federal Reserve's big cut to interest rates. The S&P 500 jumped 1.7% for one of its best days of the year and topped its last all-time high set in July. The Dow Jones Industrial Average leaped 522 points, or 1.3%, to beat its own record set on Monday, and the Nasdaq composite led the market with a 2.5% spurt. The rally was widespread, and Darden Restaurants, the company behind Olive Garden and Ruth's Chris, led the way in the S&P 500 with a jump of 8.3%. It said sales trends have been improving since a sharp step down in July, and it announced a delivery partnership with Uber. Nvidia, meanwhile, barreled 4% higher and was one of the strongest forces lifting the S&P 500. Lower interest rates weaken criticism by a bit that its shares and those of other influential Big Tech companies look too expensive following the frenzy around artificial-intelligence technology. Wall Street's gains followed rallies for markets across Europe and Asia after the Federal Reserve delivered the first cut to interest rates in more than four years late on Wednesday. It was a momentous move, closing the door on a run where the Fed kept its main interest rate at a two-decade high in hopes of slowing the U.S. economy enough to stamp out high inflation. Now that inflation has come down from its peak two summers ago, Chairman Jerome Powell said the Fed can focus more on keeping the job market solid and the economy out of a recession. Wall Street's initial reaction to Wednesday's cut was a yawn, after markets had run up for months on expectations for coming reductions to rates. Stocks ended up edging lower after swinging a few times. "Yet we come in today and have a reversal of the reversal," said Jonathan Krinsky, chief market technician at BTIG. He said he did not anticipate such a big jump for stocks on Thursday. Some analysts said the market could be relieved that the Fed's Powell was able to thread the needle in his press conference and suggest the deeper-than-usual cut was just a recalibration of policy and not an urgent move it had to take to prevent a recession. That bolstered hopes the Federal Reserve can successfully walk its tightrope and get inflation down to its 2% target without a recession. So too did a couple reports on the economy released Thursday. One showed fewer workers applied for unemployment benefits last week, another signal that layoffs across the country remain low. Lower interest rates help financial markets in two big ways. They ease the brakes off the economy by making it easier for U.S. households and businesses to borrow money. They also give a boost to prices of all kinds of investments, from gold to bonds to cryptocurrencies. Bitcoin rose above $63,000 Thursday, up from about $27,000 a year ago. An adage suggests investors should not "fight the Fed" and should instead ride the rising tide when the central bank is cutting interest rates. Wall Street was certainly doing that Thursday. But this economic cycle has thrown out conventional wisdom repeatedly after the COVID-19 pandemic created an instant recession that gave way to the worst inflation in generations. Wall Street is worried that inflation could remain tougher to fully subdue than in the past. And while lower rates can help goose the economy, they can also give inflation more fuel. The upcoming U.S. presidential election could also keep uncertainty reigning in the market. A fear is that both the Democrats and Republicans could push for policies that add to the U.S. government's debt, which could keep upward pressure on interest rates regardless of the Fed's moves. Indexes climbed even more across the Atlantic and Pacific oceans. They rose 2.3% in France, 2.1% in Japan and 2% in Hong Kong. The FTSE 100 added 0.9% in London after the Bank of England kept interest rates there on hold. The next big move for a central bank arrives Friday, when the Bank of Japan will announce its latest decision on interest rates.